Modis, Guardian in buyout tussle

NEW DELHI: This could become a path-breaking precedent for resolving controversies between Indian and foreign JV partners over the latter's plans to set up new, wholly-owned ventures, threatening the viability of the existing joint venture. Guardian International of the US and Modi Rubber, the warring stakeholders of Gujarat Guardian, have offered to buy each other out of their profit-making joint venture.

Both partners are also trying to buy out two Gujarat government-owned companies that hold 4.3% stake each in joint venture

Guardian's 50% stake in Gujarat Guardian would be worth more than $80 M

The joint venture company has more than $66 million in liquid assets and its bank balance is growing at $2 million per month

Guardian has sought permission from FIPB to set up a 100% subsidiary here

Based on an assessment made by ICICI Securities for financial institutions, the US giant has offered $40 million for Modi Rubber's 22.4% stake in Gujarat Guardian. The offer price, which works out to around Rs 55 per share, has been rejected by Modi Rubber.

Instead, the local partner has offered to buy out Guardian's 50% stake in the company at the same price. According to information available with the finance and commerce & industry ministries, both partners are also trying to buy out two Gujarat government-owned companies — Gujarat Alkalies & Chemicals Ltd (GACL) and Gujarat Mineral Development Corporation (GMDC) — that hold 4.3% stake each in the joint venture.

Going by the valuation of ICICI Securities, Guardian's 50% stake in Gujarat Guardian would be worth more than $80 million. The joint venture has more than $66 million in liquid assets and its bank balance is growing at $2 million per month, according to information provided by Modi Rubber to the government.

While Guardian has sought permission from the Foreign Investment Promotion Board (FIPB) to set up a 100% subsidiary here, the local partner wants Gujarat Guardian to expand its business. The new venture would affect the joint venture and it is in violation of the shareholders agreement between the two partners, Modi Rubber has argued. Interestingly, Press Note 1 of 2005, which deals with disputes between such partners, recommends that a 'conflict of interest' clause should be incorporated in joint venture agreements between Indian and foreign partners.

Since the issue is stuck at FIPB, US government representatives have urged the finance ministry to speed up clearance for Guardian. The American company has informed officials that it was buying out local partners, and the new venture would not affect Gujarat Guardian. On the other hand, the local partners have expressed the apprehension that Guardian might import products from its production facilities located in the Gulf region.